RF's Financial News

Sunday, March 31, 2013

By
now, many of us are all too familiar with Cyprus. Because of all the bad debts, the Cyprus
banking system has folded up like a ‘cheap suit’.They needed ‘bail out’ funds, in order to pay
their ‘criminal banksters’ that made the mistake(s) in the first place.As a result, any and all accounts
at the Bank of Cyprus with deposits of more than the insured 100,000 euros
($128,225) will lose 37.5% of their value after they are converted into a class
of bank shares. The Bank of Cyprus will
freeze another 22.5% in each of these same accounts until the Cyprus’s bailout
terms have been met. The money will be placed in a fund that won't earn
interest, and it could see an even larger write-off. The remaining 40% will earn interest but the
money will be temporarily frozen for liquidity purposes.Cyprus’s Finance Minister Michalis Sarris
this week estimated that 40% of the deposits would be converted to bank shares.

This
is truly a shock to the system.We TRUST
all of our systems.Our systems have
become so much a part of our lives that we don't even give them a second
thought. When you turn on a faucet you
believe that water will come out of it 100% of the time.When you flick the switch or push the ‘on’
button you expect electricity.When you
turn the knob on your gas range, you expect fire. If any one of those systems misfires, your day
is going to drastically change course.We’ve
built that same trust in our banking system.We don’t think twice about it, but unfortunately it hasn’t worked
properly for the past 35 years.In the
last 10 years our own ‘banksters’ have broken every law and have virtually
bankrupt the world.Our ‘banksters’ approved
mortgages for dead people, and mortgages for people that couldn't pay. They then bundled those same mortgages, called
them "prime" investments, and sold them to companies, pension funds,
and other countries. Meanwhile those
same banks (because they knew they weren't worth anything) shorted those very
investments. Can you imagine the audacity?You’re sitting with a client who runs a
pension fund for firemen, and you sell him millions of dollars worth of trash,
telling him that it’s a safe and sound investment.All the while your boss is writing up short
sale contracts on those same investments, knowing that they’re not worth the
paper that they’re printed on.

In
the case of Cyprus, their ‘banksters’ placed huge bets on Greek debt, and the
bets went sour. The Cyprus banks became insolvent.The EU rushed in with funds, ideas, and more ways
to kick the can down the road.Cyprus is
a tiny island country of 1,000 people that produces less than the state of
Vermont, but is a banking HUB because it is willing to accept money from all
corners of the globe – taxing it a little, and using it a lot.But the Cyprus banksters have run out of ways
to get others to pay for their crimes. Well, it took a while but they did what I said
every bank would ultimately do – ‘Raid the Depositors.’But we built this system based upon
TRUST.The EU has just thrown TRUST out
the window, and replaced it with the words: “Contribute to our own
Liquidity.”The EU is calling the act of
raiding depositor’s money – a "contribution" to the welfare of
Cyprus.

Now,
if you're John Q. Public in Spain, and you just saw the EU approve Cyprus’s
raiding of depositor’s money, what would you do?Here in the US we have the FDIC (which is
bankrupt) supporting our deposits up to $250,000 (in any one bank).Is everything over $250k fair game now?Are we sure that Citi or Goldman won't raid our
accounts like Cyprus has done?

In
my class at CMU on Thursday someone asked me: “How can it be that half of our graduating
seniors don’t have jobs yet, but our stock market is reaching all time highs?”During this past week we saw consumer
confidence fall, the Purchasing Manager’s Index fall, housing sales fall, and
more than 6 economic reports miss expectations. We can’t make a real housing recovery, can't
create jobs, can't spur economic growth, but we can push the market higher and
create the wealth effect.

Recently
the BRICS (Brazil, Russia, India, China, and South Africa) just created a $100B
infrastructure bank that will be used to help developing countries that run
into trouble. They also decided that
trade between their nations would be conducted in their native currency, NOT in
the US dollar.

In
the past two weeks my best friends and I have attended two ‘hack-n-slash’
movies about destroying the U.S. White House and our economy.I’m desperately hoping that life does NOT
imitate art.I wish you all a Happy
Easter and to quote Matthew 11:16 - “He that has ears to hear, let him
hear.”

The
Market:

Like
the “Little Engine that Could", this week The Ben Bernanke chugged,
snorted and pulled this market to all time highs.Now what?While Europe melts, and our Central banks amass huge quantities of Gold (while
keeping a lid on the price) – what happens now? As long as the printing presses keep printing,
we have no other choice but to see higher markets. Combined with what is going on in the rest of
the world, the US market looks good to foreigners; therefore, any dips will be
bought.

But
let’s do a reality check and examine the company - Caterpillar. CAT is the epitome of global construction.
They're bigger (by market cap) than all of their competitors combined. If someone is going to build something of any
consequence, Caterpillar products will be involved.Yet while the S&P and DOW push their way
to all time highs, CAT is dropping in price.That says volumes about the reality of the global economic picture.

But
given they’re printing so much money, how does the FED prevent the market
gaining 1,000 points in one day?The
answer is that the FED sends out mixed messages as to when the money printing
will stop.On the same day as one FED
member says: “The economy can use more
monetary assistance from the FED, we need to be more aggressive,” you have
another FED member saying: “I
would regard a slowing in the pace of asset purchases to be a welcome direction
for monetary policy, if it resulted from a significant improvement in the
outlook for labor market conditions.”The goal here is to tell everyone not to worry, the punch bowl
will be full for years to come, and then temper it with another message saying
they might pull the punch sooner than later. That keeps the market moving
up while he's printing, but keeps the really big players from putting in tens
of billions at one time, and driving the market up too far too fast.

We
have no choice but to hold our nose, lean long and hope for the best. Yes, watching CAT tumble makes me think that
maybe we're about to see a correction, a profit-taking binge, but (in my
opinion) it will be short-circuited and this dip is buyable.The "new monthly money" will be applied
early this coming week, and if we're going to get a pull back, it will be over
the next few weeks as earnings disappoint. Be careful out there – and celebrate the
holiday!

Tips:

Last week I sold SNDK for a $2/share profit, and am
sitting with three (non metal) positions.For next week, I’m liking RF Micro Devices (RFMD) over $5.45, Vale S.A.
(VALE) over $17.35, and Intuit (INTU) over $66.

My
current short-term holds are performing nicely (with gold and silver still
lagging):

-COST – in at 104.10 (currently 106.08) – stop
at 105.10,

-NUAN – in 19.10 (currently 20.12) – stop at
entry,

-SNDK – in at 52.19 (currently 54.99) – stop
at 54.50,

-SIL – in at 24.51 (currently 18.15) – no stop
yet

-GLD (ETF for Gold) – in at 158.28, (currently
154.50) – no stop ($1,594.80 per physical ounce), AND

Expressed thoughts proffered within the
BARRONS REPORT, a Private and free weekly economic newsletter, are those of
noted entrepreneur, professor and author, RF Culbertson, contributing sources
and those he interviews.You can learn
more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com>
.

Please write to <rfc@getabby.com>
to inform me of any reproductions, including when and where copy will be
reproduced. You may use in complete form or, if quoting in brief, reference
.

If you'd like to view RF's actual stock
trades - and see more of my thoughts - please feel free to sign up as a Twitter
follower -"taylorpamm" is my
handle.

Views expressed are provided for
information purposes only and should not be construed in any way as an offer,
an endorsement, or inducement to invest and is not in any way a testimony of,
or associated with Mr. Culbertson's other firms or associations.Mr. Culbertson and related parties are not
registered and licensed brokers.This
message may contain information that is confidential or privileged and is
intended only for the individual or entity named above and does not constitute
an offer for or advice about any alternative investment product. Such advice
can only be made when accompanied by a prospectus or similar offering
document.Past performance is not
indicative of future performance. Please make sure to review important
disclosures at the end of each article.

Note: Joining BARRONS REPORT is not an
offering for any investment. It represents only the opinions of RF Culbertson
and Associates.

PAST RESULTS ARE NOT INDICATIVE OF
FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN
INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING
HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT
SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF
INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS
MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING
INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment performance can
be volatile. An investor could lose all or a substantial amount of his or her
investment. Often, alternative investment fund and account managers have total
trading authority over their funds or accounts; the use of a single advisor
applying generally similar trading programs could mean lack of diversification
and, consequently, higher risk. There is often no secondary market for an
investor's interest in alternative investments, and none is expected to
develop.

All material presented herein is
believed to be reliable but we cannot attest to its accuracy. Opinions
expressed in these reports may change without prior notice. Culbertson and/or
the staff may or may not have investments in any funds cited above.

Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

Sunday, March 24, 2013

Last week’s report produced a lot of mail telling me
that the U.S. would never confiscate our money – this is America, not some 3rd
world country – we’re too big to fail and have too many rules.Not to ‘beat a dead horse’ – but the U.S. DID
exactly that in 1933.President Franklin
D. Roosevelt saw the economy grinding to a halt, and needed a way to kick start
it out of the “Great Depression.”His
cabinet decided the best way to expand the economy was to expand the money
supply.But in 1933 the money supply
(unlike today) was backed by gold.So to
expand the money supply we needed to have more gold on hand, and the only way
to obtain more gold quickly was to demand it from the American citizens.On April 5th, 1933 Executive Order
#6102 required
all persons to deliver on or before May 1, 1933, all but a small amount of gold
coin, gold bullion, and gold certificates owned by them to the Federal Reserve,
in exchange for $20.67 per troy ounce. Under the Trading With the Enemy Act of 1917,
as amended by the recently passed Emergency Banking Act of March 9, 1933,
violation of the order was punishable by a fine up to $10,000 or up to ten
years in prison, or both. This prompted
hundreds of thousands of citizens to turn in their gold at their local Federal
Reserve Bank – in exchange for $20.67 – the accepted, general price for gold at
that time.

But
wait a minute. If Gold was $20/ounce, and the U.S. had already printed all the money
that it could based upon the amount of gold that they had in storage, what good
is buying gold from the public and paying $20 an ounce for it?Isn’t that a wash?Absolutely.But once they obtained all the gold, and refined it into US bullion, the
government then declared the NEW PRICE for gold to be $35/ounce. You see by declaring that gold is NOW worth
$35/ounce instead of $20 – they could print more money in order to bridge that
70% gap that they had just created.And
the American citizens just ended up eating a 70% currency devaluation as well
as the corresponding inflation.So to
all that say: “The U.S. would NEVER do what Cyprus is trying to do” – well,
they already did.

Having
said that, I know that owning gold and silver isn’t perfect.But just last week, a glitch at Chase Bank
had tens of thousands of depositors showing an online balance of $0.00.This caused an immediate run on the bank’s
ATM’s – and Chase was quick to apologize and update their balances.But it begs the question: If you had to
absolutely PROVE (on paper – without any help of electronic records) how much
money you had in any given bank at any one time – could you?

I
was reminded (by a reader) of the Stanley Druckenmiller article a couple weeks
back, where Mr. Druckenmiller blasted the current administration and our
current seniors for passing along an insurmountable debt burden onto our
youth.The title of the article was:
“Don’t let your Grandparents Steal your Money.”

Mr.
Druckenmiller is one of the best-performing hedge fund managers of the past 30
years.He points out that the mushrooming
costs of Social Security, Medicare and Medicaid, with unfunded liabilities as
high as $211 trillion, will bankrupt our nation’s youth and pose a much greater
danger than the country’s $16 trillion of debt currently being debated in
Congress. “I am not against seniors,” said Mr. Druckenmiller.“What I am against is current seniors
stealing from future seniors.Unsustainable spending will eventually result in a crisis worse than the
financial meltdown of 2008.What is
particularly troubling is that government expenditures related to programs for
the elderly rocketed in the past two decades, even before the first baby
boomers started turning 65.In 2011,
Social Security, Medicaid and Medicare accounted for 44 percent of the
government’s $3.7 trillion in expenditures, up from 34 percent in 1990.The seniors have a very, very powerful
lobby.They keep getting more and more
transfer payments from younger generations through what’s essentially a
pay-as-you-go system.As the elderly
population rises, the number of workers who pay into Social Security is
dropping. By 2030, there will be about
two workers per retiree, down from 3.4 workers in 2000.”

Mr.
Druckenmiller thinks:

-Stocks may continue to rise due to buy-backs and the new
retail investor, but those gains probably won’t last due to too much leverage
and too much debt.

-We should change the eligibility ages for Social Security and
benefit structure for wealthy retirees.

-We need to remove the disincentives for those who would
rather work in their later years.

-We need to add a federal consumption tax because seniors
consume about the same amount as people in their 20s or 30s, yet pay less in
income taxes.

-We need to tax dividends and capital gains so as to shift the
tax burden as the population ages

-To avoid double taxation, the government could abolish
corporate taxes, which would also eliminate some incentives for companies to
move business abroad.

We
built a system of dependency and trust, and the system is breaking down.I’m finding better places for my money than
cash, and I figure those who live in Cyprus (about now) are finding the same.

The
Market:

This
week, The Ben Bernanke held a Q&A session on the economy and the Fed’s
actions.After reading a prepared
statement, he started talking about the thresholds that the Fed has
established.For example, they have
stated that “the Fed will keep buying until the unemployment is under
6.5%".The Ben Bernanke told us
that these thresholds are just "signposts", not absolutes.He then said that this very easy money policy
could go on for a long time past those signposts.Basically what he's telling us is that they're
looking at everything, and there is no real way that he can stop printing. The Ben Bernanke also admitted: "the
stock market may be hitting new highs in nominal terms, but is still far away
in real terms." This is due to inflation, but it’s nice to hear our
Central banker saying that while the DOW is hitting new highs, the returns are
(in fact) lower.

When
I look at the market, the image that appears is one of a market that is
desperately tired, in need of a rest, but that is consistently being jammed
higher. And then we have the issue of
the "late comer". A “late
comer” is someone that has missed the entire 2009 to 2013 run up, and is NOW
asking if it's time to jump back into the market. On one of the technology bulletin boards I
frequent, I noticed a post last week by a gent asking if the members thought it
was a great time to finally get back in the market because the market had just
put in its all time high. I desperately
wanted to ask him where he had been for the past 5 years, but I thought the
better of it. But then the responses
that he got were even more interesting. Many
of the site's members pitched in to say that they had just recently jumped back
into the market themselves.

In
any bubblemania I’m reminded of a quote: “the market can remain irrational,
longer than you can remain solvent." In other words, the market can keep doing (whatever
it is doing), longer than any reasonable mind would think. And secondly, as the mania begins to get ‘long
in the tooth’, it invariably pulls in those that resisted all along the way. I tend to think that some of the starts and
fits that we’re seeing is a market that wants to rest, but the late comers
detect any red as a pull back and jump in.

I’m
positive for this coming week because we have just put in a tremendous quarter,
and with the quarter ending next Friday, Wall Street would like nothing better
than to be able to send out quarterly statements showing tremendous
gains. Between that and the folks jumping in late, I now know why there
was no real correction in the last few weeks.

Let’s
assume we reach an all-time high on the S&P this week, the quarter ends, and
the new monthly money comes in.Does the
market just continue higher? It could, simply because the underlying
strength of the market is coming from a man with a printing press. But here's a small question for you – what if
you looked at the Fed's balance sheet, and it showed a figure that could only
correspond to The Ben Bernanke printing $115 Billion last month, instead of the
$85 billion that he told us about. How
would we figure out where the excess $30 Billion went?Is it possible that when the market looks
tired, and he knows something like Cyprus is coming down the pike, that he ramps
up the digital press a little higher and spreads it around so that the market
doesn’t go down?

My
point is that the market is beyond artificial at this point, and is bordering
on absolute fiction. Companies like Fedex,
Caterpillar, Deere, UPS, Oracle and a dozen others have come out saying things
are weak out there.They are missing earnings,
but the market still holds solid or goes up. This is all because of Benji Bucks, and until
they stop printing, there isn’t any real reason that the market can't keep
going up.

While
I'm still under the delusion that at some point we're going to get a 4 or 5 %
pull back, the fact is that between Benji Bucks and latecomers to the party, we
could easily just push higher. My only
problem with this is that the higher this market goes on a fake premise, the
harder it is going to fall. The people that
jump in at 14,500 are going to look good if we get to DOW 16K. But when the wheels come off, will they be
smart enough to get out? History says no,
and that there will be much pain and suffering - again. If we're going to get a pull back, it makes
the most sense for it to start late in the first week of April - after they
print up their quarterly statements, and all the managers can look like real
geniuses.Then the market could put in a
correction.

I
am playing this rally with caution.I
lean long, pick up a few stocks and do my best not to get blindsided. As
long as the DOW closes above 14,383 we should be able to keep the illusion
alive. A close under that would signal
increased danger. A close over 14,540 probably signals more gains to
come. But be wary of sector rotation. One-day materials are bid-up in a big way, and
the next two days are spent crushing the same sector that was bid-up.It’s vicious out there, so be careful.

Tips:

Last week I sold National Oilwell Varco (NOV) for no gain,
WPX Energy (WPX) for no gain, and Iron Mountain (IRM) for $0.20.I liked COST over $104 and bought it on Friday.I currently like DECK, and would dive in
around $50.80, or after it breaks over its Wednesday high of $51.16.A couple miners like AUY have started to
move, and are bringing NEM and AEM along with it.We purchased some GDXJ (the ETF of junior
miners) a while ago for our ‘long term’ account.I’m seeing that the GDX (ETF of senior
miners) is starting to move.A move over
$38.60 would put it on the radar – and the GDX getting over $39.30 would make
it a buying opportunity.

My
current short-term holds are performing nicely (with gold and silver still
lagging):

-COST – in at 104.10 (currently 105.20) – stop
at entry,

-NUAN – in 19.10 (currently 19.86) – stop at
entry,

-SNDK – in at 52.19 (currently 55.19) – stop
at 54.50,

-SIL – in at 24.51 (currently 18.15) – no stop
yet

-GLD (ETF for Gold) – in at 158.28, (currently
155.68) – no stop ($1,606.20 per physical ounce), AND

Expressed thoughts proffered within the
BARRONS REPORT, a Private and free weekly economic newsletter, are those of
noted entrepreneur, professor and author, RF Culbertson, contributing sources
and those he interviews.You can learn
more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com>
.

Please write to <rfc@getabby.com>
to inform me of any reproductions, including when and where copy will be
reproduced. You may use in complete form or, if quoting in brief, reference
.

If you'd like to view RF's actual stock
trades - and see more of my thoughts - please feel free to sign up as a Twitter
follower -"taylorpamm" is my
handle.

Views expressed are provided for
information purposes only and should not be construed in any way as an offer,
an endorsement, or inducement to invest and is not in any way a testimony of,
or associated with Mr. Culbertson's other firms or associations.Mr. Culbertson and related parties are not
registered and licensed brokers.This
message may contain information that is confidential or privileged and is
intended only for the individual or entity named above and does not constitute
an offer for or advice about any alternative investment product. Such advice
can only be made when accompanied by a prospectus or similar offering
document.Past performance is not
indicative of future performance. Please make sure to review important
disclosures at the end of each article.

Note: Joining BARRONS REPORT is not an
offering for any investment. It represents only the opinions of RF Culbertson
and Associates.

PAST RESULTS ARE NOT INDICATIVE OF
FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN
INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING
HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT
SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF
INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS
MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING
INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment performance can
be volatile. An investor could lose all or a substantial amount of his or her
investment. Often, alternative investment fund and account managers have total
trading authority over their funds or accounts; the use of a single advisor
applying generally similar trading programs could mean lack of diversification
and, consequently, higher risk. There is often no secondary market for an
investor's interest in alternative investments, and none is expected to
develop.

All material presented herein is
believed to be reliable but we cannot attest to its accuracy. Opinions
expressed in these reports may change without prior notice. Culbertson and/or
the staff may or may not have investments in any funds cited above.

Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

Sunday, March 17, 2013

The
key to our success in the US (for so long) was cheap energy. Through new
technology, the US now holds more oil and gas than almost any other nation. If we were allowed to drill and refine it (in
the amounts we "could" produce), we could easily get gasoline down to
$1 a gallon. We could take 40% right off
the top of your electricity bill. This
power position could allow us to return to the good old days. China and
Vietnam would continue to have lower wages, but our new cost of power could
serve to lower production costs enough that once again – we could compete. We have so much natural gas that we could
export it to Europe and Japan and reap tremendous profits. Imagine if:

-We transformed the closed military bases (many of which are near
coasts) into LNG ports that could ship around the world.

In
terms of a recovery, I think our economy has another choice. (1) We can print money forever, but we will eventually
implode. (2) We can stop printing money,
and we will quickly implode. (3) Or we can
harvest our natural resources (correctly), solve our debt problems, put Americans
back to work, and enjoy the economic success we had years ago. My only question is – will ‘the powers that
be’ allow this to occur? We are sitting
on 200 years worth of natural resources that could deliver us complete energy
independence within 8 - 10 years. Bottom
line: I do not believe The Ben Bernanke
and his band of Central bankers can manage a true recovery, any more than he
could avoid the 2008 melt down. But
cheap energy does offer us a solution to all of our political issues, if we can
get out of our own way.

Consider
the jobs report last Friday. Everyone screamed
and cheered because we created 236K jobs.
Unfortunately, (according to the Household Survey) the number of
full-time jobs actually declined, but part-time workers rose by 102,000. [Part-time jobs are those where the employee
works less than a 40-hour workweek, and for which the employer does not have to
pay health care.] But the most
surprising development was that the number of multiple jobholders rose by a record
340,000. So if more people got ANOTHER
job, how many actual people got new jobs?

Also
it was reported that retail sales increased dramatically. Unfortunately the largest component of the
retail sales report was the enormous rise in gasoline sales. Gasoline sales are measured in dollars spent,
and not on units sold. So all the report
really told us was that the cost of gasoline went up in February by a lot.
Imagine – we can solve the problems in the economy, put people back to work, pay
our debts and finance our Social programs, simply by harvesting the fuel that’s
beneath our feet.

Secondly,
as some of you know, I enjoy following the real estate market – particularly in
the Sarasota, Florida area. It’s become
clear that someone is purchasing houses. I know, I'm the guy that says – with 48
million people on food stamps, and unemployment much higher than what we’re
being told – there is no housing recovery going on. So, how are these houses being sold? Enter round two of the fleecing of America. On Thursday I saw this news blurb: “Blackstone
has invested $3.5 billion to buy 20,000 single-family rental homes since last
year, making the New York-based company the largest investor of its type in the
U.S. The firm is rushing to acquire
properties as housing prices recover and as demand for rentals increases among
people who can't qualify for a mortgage or don't want to own.”

That’s
a lot of homes, and if Blackstone is involved, dozens of other investment firms
are also scooping up mid-sized homes and instantly renting them out. But financial institutions make lousy
landlords. Ah-hah, but they are taking the rental
payments and packaging them into "rental backed securities" that they
are selling as investments. This
appeared in Reuters: “Blackstone is preparing a first-of-its-kind
securitization of REO-to-rental properties. This comes a week after the private equity
giant got an increased bank loan from Deutsche Bank and others to expand its
significant holdings of single-family homes.
At least 20 banks and investors looked at participating in the loan, and
some passed because their charters would not allow them to participate. Blackstone is the largest asset manager in
the sector, and demand for a securitization is thought to be so strong that any
deal could go forward without needing credit ratings.”

Oh
my, did you catch the last line – ‘without needing credit ratings.’ Didn't we see this movie 5 years ago? Didn't we see financial institutions bundle supposedly
AAA rated securities and sell them around the globe, knowing full well they
were full of folks that had no sustainable means of paying their mortgages? Now they’re going to repeat the entire cycle
with rental backed securities? But it
gets worse, with packaged mortgages they at least needed ratings. With these rental securities, there is so
much demand that they won't need ratings.
So we’re going to see ‘round two’ where we sell securities based on someone's
ability or willingness to pay their rent? What if we see more job losses, or the
economy, stalls, or people just stop paying?
Won't the securities become worthless like the mortgaged backed ones
did? This can’t be new – can it?

It’s not. One
of the first entrants in the REO-To-Rental space, Och Ziff (a $31 billion hedge
fund) after a year is now looking to cash out.
They purchased 300 foreclosed homes in northern California (at less than
$100,000 apiece). After pouring tens of
thousands of dollars into each home for renovations before renting, they are
seeing returns less than expected and wish to exit the business. I wonder what happens when that entire rental inventory comes
back into the market as home sales? What
happens when they convert these rental payments into "securities" but
the renters turn squatter after being laid off, or take a pay cut? Did we learn our lesson? I suspect we're seeing another learning
experience coming here shortly.

The
Market:

The
last two weeks of run up has been one of the stranger things that I've seen in
a long time. Even the staunchest bears –
Richard Russell of DOW Theory fame, has thrown in the towel and decided to take
a chance on the market because it was going up despite all the negatives.

We
were up 10 days in a row, made an all time DOW high, and are within an inch of
the all time S&P high. But in a
perverse sort of way, it has done so despite everyone with a working brain cell
realizing it's doing it for the wrong reason. I've been leaning long but keeping our finger
near the sell button. I've taken profits
on things as they've risen, often selling half the position and allowing the
other half to ride higher. But make no
mistake, I've seen movies like this before and although the plots aren't all
the same, the ending is. This will end
badly. But until it does, I will make
hay while the sun is shining.

Friday
they couldn't pull off the 11th up day in a row. But to call a 25-point DOW drop the start of
something other than a pause is a bit of a stretch. Time will tell if they'll finally use it as an
excuse to do some profit taking. The fun
part of trying to guess the market's next move is when you get a situation like
we have right now - do the ‘market movers’ continue the move higher, or have
they sucked enough late comers to the party that they're willing to shear some
of those sheep now?

I
tend to think we might be in pause mode for a few days now. On Wednesday the Feds will have their FOMC
meeting, and then at 2:30 The Ben Bernanke will do his live presentation with Q&A
about the economy. Everyone will worry
over whether he mentions the stronger economic numbers, and removing the punch
bowl. But The Ben Bernanke knows full
well that the employment numbers were massaged.
He knows that the Government through all the FHA programs, and the
REO-to own programs is subsidizing housing. He knows that if rates really rise, things will
get ugly quickly. He might talk about tightening,
but that day is a long way off.

So
a likely scenario is a pause here for Monday and Tuesday and then Wednesday (right
ahead of the close) we soar higher and resume the "all-time" attack
on the S&P highs. That's my 2 cents.

Tips:

Last week I sold Starbucks (SBUX) for $1.

On
Friday (via Twitter) I said that I liked National Oilwell Varco (NOV) over 70,
and Coach (COH) over 52 on a rebound.

My
current short-term holds are recovering nicely:

-DE – in at 89.39 (currently 92.26) – stop at 91.00,

-NOV – in at 70.05 (currently 70.57) – stop at
entry,

-WPX – in at 16.45 (currently 16.82) – stop at
entry,

-SNDK – in at 52.19 (currently 55.14) – stop
at 54.50,

-IRM – in at 35.32 (currently 36.39) – stop at
35.80,

-SIL – in at 24.51 (currently 18.11) – no stop
yet

-GLD (ETF for Gold) – in at 158.28, (currently
154.01) – no stop ($1,592.50 per physical ounce), AND

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